Economic diversification may be defined as a process in which a growing range of economic outputs are
produced.

The role of economic diversification in climate change adaptation

Sectors such as tourism, agriculture, fisheries, forestry and energy production are all
sensitive to the adverse effects of climate change. The negative impacts of climate
change on these sectors are of concern to all countries, especially for those whose economies
are primarily driven by climate sensitive sectors. In this context it is imperative for
all countries to diversify their economies either by expanding climate sensitive sectors or by
promoting adaptation measures that increase resilience within the sector. Economic
diversification is also a key component of sustainable development as it will assist countries
in reducing poverty and generate employment in the long run.

Sectors vulnerable to climate change

Economic diversification strategies have
been employed in a wide range of sectors, with particular emphasis on those sectors many developing
countries traditionally rely on as a main source of income. This section sketches some of the
possible approaches to economic diversification in three sectors:

Tourism: tourism is critical in fostering further economic growth in developing
countries, generating a large share of worldwide employment with particular significance in Small
Island Developing States. Climate change impacts threaten to undercut reveneus generated
through tourism.

Agriculture: agriculture will be impacted by climate change in all
countries. However, those countries with a low level of economic diversification and a
comparatively strong reliance on agricultural products and exports will be most severely
impacted.

Energy: energy production will also be impacted by climate change.
Expanding the portofolio of energy production forms, such as increasing hydro or water production,
is one of the options described below to increase resilience.

A. Tourism

Tourism is seen worldwide, particularly in developing countries as a vehicle to generate employment
as well as foster economic growth. Worldwide, the sector employs over 200 million people,
approximately 8 % of global employment.
SIDS are highly dependent on the revenues generated by the tourism sector and tourism related
activities. However the sector is highly sensitive to the adverse impacts of climate change and
global warming. Such climatic impacts on the sector include increased temperatures, precipitation
changes, biodiversity loss, sea level rise, disease, changes in travel costs and destination choice,
economic impacts, coastal erosion, and the intensification and frequency of weather related extreme
events.
Given the importance of the tourism sector to address poverty reduction and foster economic
growth in many SIDS, there is an urgent need to adopt social, economic and climate responsive policies
that will encourage sustainable tourism. Such adaptation measures include diversifying a tourism
portfolio of a country in order to increase their adaptive capacity to the anticipated changes in the
climate. Other measures are targeted at restoring tourism driven products, such as coral reefs,
fishing, beach nourishment and mangroves. The case study of Belize is presented below
highlighting efforts taken by the government of Belize to respond to the adverse effects of climate
change within the sector.

Tourism diversification in Belize

Stakeholder engagement: Ministry of tourism, business
owners and managers.Background: Belize economy is highly driven by tourism.
The sector generates approximately 17% of its GDP and indirectly supports other sectors from
inter-industry trade. However the sector is extremely vulnerable to the adverse effects
of climate change. The threat of rising sea levels, increased temperatures,
tropical storms and hurricanes, coral bleaching and over fishing, all of which are associated
with climate change, have affected large number of people visiting the country as well as the
tourism employed population within Belize. These findings are supported by a survey
conducted in 2006 by the Ministry of tourism which assessed the vulnerability of climate change
on the tourism sector as well as examined adaptation strategies to revive the products that
drive tourism within the country.Progress made and still on going: As of 2005, the
government of Belize has been targeting policies that focuses on reducing the exposure of the
tourism sector to the impacts of climate change. Such measures include the construction
of sea walls to stem coastal erosion, mangrove rehabilitation, beach nourishment and greater
emphasis towards disaster preparedness planning. Efforts will also be taken to
preserve coral reefs, reduce agricultural pollution and place fishing quotas off the coast of
Belize.
The government of Belize is preparing to modify marketing strategies to promote inland
attractions for tourists in order to further diversify the tourism portfolio. These
strategies include the promotion of Mayan archaeological sites, limestone caves and tropical
rainforests. Greater emphasis will also be made on raising public awareness of the
vulnerability to climate change as well as the impacts of climate change on the business plans
and strategies.Lessons learned: Tourism is a key sector in driving the
economy of Belize. However, it is extremely vulnerable to the adverse affects of climate
change. To date the government of Belize has initiated several adaptation activities to
respond to the growing threat and recover tourism dependant products and the tourism employed
sector. However, high levels of public debt that has consumed greater portions of the national
economy and limited access to capital have constrained the capacity of the country to support
and initiate costly and sustainable adaptation measures to revive the tourism
sector.

B. Agriculture

The adverse affects of climate change on agriculture have become a major concern for all
countries. The length of the growing season and the type of crop grown are both affected by
changes in temperatures. Climate change will also modify the availability of water, which will
have a profound effect on agricultural productivity. Poorer countries with predominantly rural
economies and low levels of agricultural diversification will be at most risk.
Adaptive approaches to minimize the adverse effects of climate change on agriculture, include
initiating reforestation and afforestation activities, improving irrigation efficiency, conserving
soil moisture through appropriate tillage methods.
Another adaptation strategy taken by farmers is crop diversification that has proven to be one of the
most popular farm level responses to climate variability and change. Several countries have
successfully made efforts to initiate crop diversification activities. These include:
Mozambique , India , Sri Lanka and Canada . The case study of Kenya is presented
below.

Crop diversification in Kenya

Stakeholder engagement: The government of Kenya,
farmers, Global Environmental Facility (GEF) and the World Bank.Background: The Kenyan economy is highly
dependant on agriculture, it is one of the country’s main economic activity.
Between 1996-2000 agriculture contributed 24.5% of the total Gross Domestic Product (GDP), and
accounts for approximately 70% of the country’s export earnings. Maize is
Kenya’s most stable crop, however coffee, tea, and sugar cane are also grown and sold
commercially. The agricultural sector however, is extremely vulnerable to the adverse
effects and impacts posed by climate change, especially during the summer season. A
reduction in water availability triggered by higher temperatures during the summer months
(March - May) have greatly reduced crop yield and as a result reduced net crop revenue, leaving
the Kenyan economy vulnerable.Progress made and still ongoing: The growing
threat of the adverse impacts of climate change on the agricultural sector has prompted the
government of Kenya to initiate economic diversification adaptation strategies at both national
level and micro level. Such initiatives taken by the government to promote crop
diversification at a national level include the removal of agricultural subsidies, encouraging
land use zoning and introducing differential land tax systems for promoting crop
diversification. At a local level, farmers are encouraged to diversify their crop portfolio to
increase their adaptive capacity to climate change.
A survey was carried out in 2006 by the World Bank/GEF and interviewed 800 farmers from
different climatic farming zones in Kenya. The study focused on the potential impacts of
climate variability and climate change on farmer households and agricultural
production. The purpose of the survey was to also identify micro-level adaptation
strategies adopted by farmers to significantly reduce the vulnerability of the sector and their
associated livelihoods to the anticipated future impacts of climate change. Such
strategies included the diversification and intensification of crop production, changes in land
use and well as altering the timing of operations that were adopted to address the long-term
climatic variations such as increased temperatures and a moisture reduction. The most
popular adaptation measure adopted by farmers was crop diversification, which was adopted by
37% of the households, followed by tree planting 16%.Lessons learnt: Kenya has an agriculture driven
economy. However, the sector and the country’s economy is highly sensitive to the
adverse affects of climate change. In the last decade the government has been playing a
critical role in initiating and encouraging polices targeted at farmers to diversify their
crops to adapt to the anticipated effects of climate change. According to a GEF/ World Bank
study in 2006 the main constraints for the farmers to the government policies has been lack of
information about short-term climatic variations, lack of knowledge of appropriate adaptations,
lack of credit or savings or lack of appropriate seeds.

C. Energy

The energy sector is highly sensitive to the adverse effects of climate change. Climate change is
expected to affect both the supply of and demand for energy production. Energy diversification
can be seen as an adaptation measure to increase resilience within the energy sector in responding to
the anticipated impacts of climate change. One approach would be to further expand the
portfolio of energy sector (adopting new forms of energy production such as solar, wind and hydro
power).
Solar power is one of the attractive options for energy diversification because one billion people
currently reside in areas suitable for its utilization. Concentrating solar power plants (CSP
systems) has proved to be cheaper than photovoltaic technology, and fossil fuel back-up or heat
storage guarantees sustain power. New technological concepts, such as the integrated solar
combined cycle, direct steam generation and molten salts for heat storage and continuous power
production, are in place already. Wind energy is already a major energy resource in some
countries like Morocco, Egypt and Oman. Geothermal power is available in Turkey, the Islamic
Republic of Iran, Saudi Arabia and Yemen. There is a huge potential for harnessing energy from
water and biomass resources in Egypt, Iraq, the Islamic Republic of Iran, and Turkey.
Climate change could also affect the supply of and demand for energy produced from renewable sources
of energy, as was highlighted in Albania’s first national communication to the United
Nations. Approximately 80% of Albania’s energy is generated by hydropower. However,
this form of renewable energy is extremely vulnerable to the anticipated decrease in precipitation
rates associated with future climate projections. The World Bank together with the Albanian
government conducted a workshop in 2009 in Tirana. The purpose of the workshop was to
understand the potential risks and management of the adverse effect of climate change on the energy
sector.

Related UNFCCC events

Report on the technical workshop on increasing economic resilience to climate change and reducing reliance
on vulnerable economic sectors, including through economic diversification. Note by the secretariat.
FCCC/SBSTA/2009/7